President Xi and Trump at the Mar-A-Lago…What this means for China Stocks

April 11, 2017 | Tama Churchouse

Canapés and missile strikes, but no Big Macs

“I would not be throwing him [Xi Jinping] a dinner. I would get him a McDonald’s hamburger and say we’ve got to get down to work because you can’t continue to devalue [the renminbi]… I would give him a very — yeah, but I would give him a double, probably a double-size Big Mac.”

Donald Trump, August 2016

At the President’s Mar-A-Lago resort last Thursday evening Donald Trump and Xi Jinping dined on Caesar salad, Dover sole and New York strip steaks, paired with a 2014 Girard Cabernet Sauvignon, a wine which one reviewer on wine website Vivino describes as tasting “like a swamp in a good way”.

Big Macs were conspicuously absent from the menu.

But midway through dinner, Trump informed his counterpart that he had launched 59 Tomahawk missiles at a Syrian airfield in response to Syria’s use of nerve gas against civilians two days earlier.

With no congressional approval, and Trump’s statement ahead of the meeting that “If China is not going to solve North Korea, we will”, the message was clear: Despite the Floridian diplomatic niceties, China should expect the unexpected from Donald Trump.

In reality, the Syria strike completely overshadowed the summit between the two leaders.

“I expect there to be no grand bargain on issues of that magnitude because there are no quick and obvious solutions in sight that are palatable to both Trump and Xi.

Rather, I think we can expect to see Xi Jinping come bearing some economic gifts for Trump, preferably something that Trump can boast about in 140 characters or less.

My hope is that Trump will take the opportunity to appear ‘presidential’. Xi Jinping is a measured, calm individual and if Trump can come across as a businessman who’s ready to do deals (an aspect about Trump that the Chinese actually respect) then the summit will provide an opportunity to reset relations.”

We certainly didn’t get any grand bargains on the likes of North Korea, South China Sea militarization, or the renminbi. There were no formal conclusions or even a press conference attended by both leaders.

However, Xi and his team did bring some of those tweetable gifts for Donald Trump. Officials involved in the Mar-A-Lago talks discussed China’s willingness to end a ban on U.S. beef imports into China (in place since 2003) along with allowing U.S. companies increased China financial sector market access.

On the relationship front, the two leaders appeared to establish a rapport, with Xi saying they had built a “good working relationship”, and Donald Trump’s assessment that “tremendous goodwill and friendship was formed”. Trump has also accepted an invitation from Xi to visit China later in the year.

From a Chinese perspective, this was a successful trip.

There were no diplomatic fumbles, so no problems for Xi Jinping to be portrayed strongly in the Chinese media. A photo from Chinese news agency Xinhua widely circulated across mainland China shows a poised and confident Xi Jinping, with his more relaxed and perhaps less commanding American counterpart leaning back on the sofa.

It’s hard to overstate just how seriously this kind of imagery is taken by the Chinese. Projection of power is extremely important when it comes to these visuals.

Take a look at this recent photograph of Xi Jinping with Philippine President Rodrigo Duterte. Xi standing over Duterte, who appears hunched, dishevelled and diminutive. There’s no doubting who’s in charge.

As Xi said of the summit “We had long and in-depth communication. And, more importantly, we have further built up understanding and established a kind of trust, and we have initially built up a working relationship and friendship.’’

The two leaders also agreed on a new 100-day plan for trade talks with the aim of boosting U.S. exports and reducing the overall trade deficit with China which, as we’ve written before, is high on President Trump’s agenda.

But we take such ‘plans’ with a huge pinch of salt, and you should too. Substantial trade deals take years, not months. And we still fully expect that Trump and his team will continue to throw jabs in China’s direction. As the President himself tweeted on Saturday: “goodwill and friendship was formed, but only time will tell on trade.”

Overall though the lack of visible controversy or open conflict between the two leaders paved the way for the first step of a much-needed ‘reset’ for their relationship. This can only be a positive for Chinese stocks.

About Tama Churchouse

Tama Churchouse spent nearly a decade creating and selling financial derivatives for a global investment bank in Hong Kong. As Lead Analyst he brings technical expertise across the entire asset class spectrum, from equities and index products, to interest rates and credit.

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